The impact of teaching on hospital costs: A budgetary approach to non-market institutions

NHS hospitals contribute to medical education, training nurses and research, as well as to the care of patients. In the past they have been funded largely on the basis of resources employed, with additional funding for medical education and training nurses. The intellectual basis for the funding of medical education is a single econometric study of English hospitals in the financial year 1969-70. The methodology used has since been criticized, and it has been suggested that actual expenditure has been very much less then that earmarked by the health departments. New estimates are obtained using Scottish data for the financial year 1985-86. The method used is to proceed in a two-stage fashion, identifying via regression techniques variables measuring hospital activity and resources which contribute significantly to hospital costs. The paper then assesses the significance of medical education, nurse training and hospitals’ teaching status against this background. The present conclusions include: (1) actual expenditure on medical education was probably less than the funding formula allowed, but the error of margin is too large to suggest overfunding; (2) training nurses incurs significant financial costs, even after the explicit allowances made; and (3), major teaching hospitals tended to cost more, but not significantly more than their non-teaching counterparts. These financial implications for NHS hospitals should be borne in mind given the current NHS review.